Are ULIPs A Good Option for First Time Investors?

Sep 04, 2018 | 11 months ago | Read Time: 2 minutes | By iKnowledge Team


What is a Unit Linked Insurance Plan? A Unit Linked Insurance Plan gives investors the option to invest in insurance and investments under a single integrated plan. This way you can be covered financially with an insurance cover whilst gaining profits from equity of debt investments.

A Systematic Investment Plan (SIP) basically allows you to invest your money in mutual funds. SIP allows you to invest small amounts periodically. In case of an SIP, the investor invests certain amount in regular intervals (weekly, monthly, quarterly, etc.)


Features of a Unit Linked Insurance Plan (ULIP)

  1. A ULIP is both an investment and an insurance option.
  2. The premium paid on ULIPs is invested in a varied portfolio such as equity, stocks and debt market instruments, etc.
  3. If extra fund units are issued, the insured gets add-on loyalty benefits.
  4. ULIP plans are eligible for tax deductions under section 80C of the Income Tax Act 1961.
  5. Performance of ULIP is dependent on market conditions.
  6. You cannot liquidate your ULIP investment during the first 5 years of the policy. This means the amount invested cannot be withdrawn in the first 5 years. This will allow your investments to grow in the long run.
  7. A ULIP lets you switch between debt and equity funds easily.
  8. ULIPs are transparent and help to understand every condition or clause of the policy thoroughly.

The lock-in period of a ULIP is 5 years. Experts suggest that it does not make sense to withdraw the policy in the first 5 years, as it may prove to be risky. Furthermore, the premium allocation charges are high too. Hence the investor loses on both the ends. In case of mutual funds, policyholders can opt out before 3 years. But this requires the investor to be aware of the market conditions beforehand. Otherwise, such a withdrawal may prove to be a risky affair. II/Aug 2018/4335

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